Saturday, November 28, 2009

EPL matches for 2010

27 people who watch EPL matches responded to my survey. Their responses are:

a) switch to Singtel: 40%
b) watch in pub and friends home: 30%
c) give up watching EPL: 30%

80% said that Singtel should accept Starhub's offer to broadcast the EPL and that MDA should mandate that this sharing be done. The same proportion said that it is wasteful to have 2 set top matches to watch the channels.

Buy term insurance directly through internet portals

Someone asked if it is possible to buy term insurance and family income benefit directly from an insurance company through an internet portal.

So far, the insurance companies in Singapore have been reluctant to offer this channel, as they are afraid of upsetting their insurance agents. I hope that this will become possible in the near future. There are many websites in USA that offers term insurance at very competitive rates, much lower than in Singapore.

Life insurance can serve a useful purpose

Life insurance is inherently a good product. It provides protection and encourages savings for the long term.

It becomes bad when too much of the savings is taken away from the policyholder, leading to a poor return to the policyholder, compared to other types of investments. It becomes worse when it is sold dishonestly, without disclosing the true cost to the policyholder or by deceiving the policyholder using half truths or outright lies.

It is possible to design life insurance products to give good value for policyholders and still allow an adequate rate of commission to the insurance agent. It allows the agent to make a honest living and to earn more through hard work, without making the customer poorer.

Some insurance companies practiced fair treatment of policyholder in the past, and even give a good rate of bonus based on what they have earned. This allowed the customer to earn a good rate of return, even after allowing for expenses and profit margin. It is possible to achieve this outcome in the future, if the principles of fair treatment of customers are observed.

Tan Kin Lian

Termination of Living Policy

Dear Mr Tan,
In 1993, I bought the above policy for myself and family members. I believe at that time, you were in charge of NTUC. I read that you have bought the above too but have since redeemed it. Would you be able to share why and should I continue or redeem the policy like you did. I am now 60 years old.

REPLY
My reasons to give up the living policy are:
a) I am now retired and will not suffer any loss of income in the event of disability
b) I expect medical expenses to be covered under my Medishield plan
c) If I have to pay expenses not covered under Medishield, I can pay out of my accumulated savings
d) I do not like the restructuring of bonus introduced by the new management.

Payout under CPF Life

Dear Mr Tan
In the CPF-Life form they ask two questions (which I feel is irrevelant):
- annual assessable income
-annual value of house.

I am doing some part-time job with provides an irregular income and may downgrade to a smaller flat later on. I do not know if the CPF will pay me more, less or the same amount in the future, due to my change of circumstances.

I intend to put $75000.00 into my retirement account to join this scheme. Should I go ahead or put my money here or go elsewhere?

REPLY
The CPF ask you for the annual assessible income and the annual value of your house to determine if you quality for the full amount of the L-Bonus of $4,000, or a partial bonus or none at all. Apart from the L-Bonus, the monthly payout from the CPF Life will not be affected by your income or housing.

In my view, the CPF Life is attractive to the members as it is run operated as a non-profit and on mutual principles (i.e. all the members share the experience of the scheme fairly), has low expense ratio and earns an attractive interest rate of around 4%.

The annuity plan offered by the insurance companies, will not be able to offer this attractive payout.

Family Income Benefit

A family income benefit is a life insurance policy that pays a monthly income to the family following the death of the life assured. The income is payable for the remainder of the term.

I consider this type of insurance to be the most suitable policy for a person to take care of the financial needs of the family. It is more suitable than a term insurance policy.

Take the example of a male aged 30 with a monthly income of $3,000 and young children. He can buy a term insurance policy to cover $300,000 for 25 years and pay an annual premium of $720. For the same premium, he can buy a family income benefit to pay $3,000 a month from death until the end of 25 years.

If death occurs during the first year, the total payout is $3,000 X 12 X 25 = $900,000, but paid monthly over 25 years. This is 3 times the amount payable under level term insurance. If death occurs at end of year 15, the total payout is $3,000 X 12 X 10 years = $360,000, which is still more than the payout under the level term.

The monthly payout is better to meet the family needs, as the spouse does not need to worry about how to invest the lump sum.

Unfortunately, the insurance companies in Singapore are not keen to sell the family income benefit. Most of their sales are made through the agent, who wants to sell other life insurance policies that pays a higher commission to them. The agent will try to convince the customer to buy a policy that gives a return on the premiums, although the return is rather poor and is usually less than 2% per annum.

Some companies offer family income benefit, but they loaded up the premium to a much higher rate, to give a high profit and expense margin. The premium could be two times of what it should be.

To get a competitive rate, the customer should ask a few insurance companies to quote for a family income benefit to pay $X a month for a term of 25 years. If several companies are willing to quote the rate, they are likely to offer a more competitive rate, that reflects the actual cost of claims plus a fair margin for expenses and profit.

I hope that life insurance companies will offer this plan to be sold directly to customer through the internet.

Tan Kin Lian

Keep cash, and be safe

Someone asked for my views on how to invest money at this time. It is a difficult question.

I think that it is better to keep cash, i.e. put in a bank to earn 0.5% per annum. This may be a poor return, and does not cover inflation, but it is safer. I do not like the stock market as it has been inflated due to cheap money from the government stimulus packages around the world.

The underlying problems of the global economy has not been solved, as there is still high unemployment and lower consumer demand. People will be unwilling to spend, if they are not sure about the security of their jobs and incomes. When people spend less, more people will become unemployed. This leads to a depression.

While the global economy remains gloomy, and the underlying problems are not solved, it is better to keep cash. Some people rushed into gold and commodities, but their prices may be too high now.

I would be more confident when the governments around the world start to adopt Keynesian principles, i.e inflate the global economy by creating more jobs funded by the state. This will cause inflation a few years later, but will have the impact of reviving the global economy. At that time, I will start to invest in the stock markets. If the bond markets gives a higher yield (better than inflation), I may invest in bonds also.

Tan Kin Lian